Esco Technologies Inc 10-Q for FY2024 Q1

Esco Technologies Inc (ESE)

10-Q 2024-02-09 For: 2023-12-31

Added on April 04, 2026

About this 10-Q

Esco Technologies Inc filed this 10-Q on February 9, 2024, covering the quarter ended December 31, 2023 (FY2024 Q1).

Headline figures

Quarter ended December 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $218.31M; up 6.2% from $205.5M a year earlier
Net income: $15.17M; up 3.0% from net income of $14.73M a year earlier
Diluted EPS: $0.59; up 3.5% from $0.57 a year earlier

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MISSOURI	43-1554045
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

9900A CLAYTON ROAD
ST. LOUIS, MISSOURI	63124-1186
(Address of principal executive offices)	(Zip Code)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.01 per share		ESE		New York Stock Exchange

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐


Class		Shares outstanding at January 31, 2024
Common stock, $.01 par value per share		25,798,271


	Three Months Ended
	December 31,
	2023		2022
Net sales	$	218,314	205,501
Costs and expenses:
Cost of sales		134,151	126,383
Selling, general and administrative expenses		53,968	51,302
Amortization of intangible assets		7,868	6,861
Interest expense, net		2,667	1,658
Other expenses, net		206	398
Total costs and expenses		198,860	186,602

Earnings before income taxes		19,454	18,899
Income tax expense		4,285	4,172
Net earnings	$	15,169	14,727

Earnings per share:
Basic - Net earnings	$	0.59	0.57

Diluted - Net earnings	$	0.59	0.57



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO


	December 31,		September 30,
	2023		2023
ASSETS
Current assets:
Cash and cash equivalents	$	51,396		41,866
Accounts receivable, net of allowance for credit losses of $2,274 and $2,264, respectively		194,395		198,557
Contract assets, net		138,393		138,633
Inventories		202,577		184,067
Other current assets		16,441		17,972
Total current assets		603,202		581,095
Property, plant and equipment, net of accumulated depreciation of $180,909 and $174,698, respectively		159,262		155,484
Intangible assets, net of accumulated amortization of $212,750 and $204,881, respectively		422,053		392,124
Goodwill		537,601		503,177
Operating lease assets		38,685		39,839
Other assets		11,723		11,495
Total assets	$	1,772,526		1,683,214

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt and short-term borrowings	$	20,000		20,000
Accounts payable		77,960		86,973
Contract liabilities, net		121,149		112,277
Accrued salaries		33,944		43,814
Accrued other expenses		51,640		51,587
Total current liabilities		304,693		314,651
Deferred tax liabilities		83,802		75,531
Non-current operating lease liabilities		35,709		36,554
Other liabilities		42,228		43,336
Long-term debt		152,000		82,000
Total liabilities		618,432		552,072
Shareholders’ equity:
Preferred stock, par value $.01 per share, authorized 10,000,000 shares		—		—
Common stock, par value $.01 per share, authorized 50,000,000 shares, issued 30,800,586 and 30,781,699 shares, respectively		308		308
Additional paid-in capital		305,283		304,850
Retained earnings		1,002,420		989,315
Accumulated other comprehensive loss, net of tax		(14,555)		(23,969)
		1,293,456		1,270,504
Less treasury stock, at cost: 4,995,414 and 4,995,414 common shares, respectively		(139,362)		(139,362)
Total shareholders’ equity		1,154,094		1,131,142
Total liabilities and shareholders’ equity	$	1,772,526		1,683,214


	Three Months
	Ended December 31,
	2023	2022
Weighted Average Shares Outstanding — Basic	25,797	25,863
Dilutive Restricted Shares	49	80
Adjusted Shares — Diluted	25,846	25,943


	December 31,		September 30,
(In thousands)	2023		2023
Finished goods	$	37,996	34,577
Work in process		54,656	42,178
Raw materials		109,925	107,312
Total inventories	$	202,577	184,067


	December 31,		September 30,
(Dollars in thousands)	2023		2023
Goodwill	$	537,601	503,177

Intangible assets with determinable lives:
Patents
Gross carrying amount	$	2,517	2,516
Less: accumulated amortization		1,253	1,218
Net	$	1,264	1,298

Capitalized software
Gross carrying amount	$	125,237	121,883
Less: accumulated amortization		83,709	80,774
Net	$	41,528	41,109

Customer relationships
Gross carrying amount	$	328,624	296,927
Less: accumulated amortization		117,755	113,311
Net	$	210,869	183,616

Other
Gross carrying amount	$	15,216	14,232
Less: accumulated amortization		10,033	9,578
Net	$	5,183	4,654
Intangible assets with indefinite lives:
Trade names	$	163,209	161,447


					Aerospace
(Dollars in millions)	USG		Test		& Defense	Total
Balance as of September 30, 2023	$	353.6		34.0	115.6	503.2
Acquisition activity		—		30.3	—	30.3
Foreign currency translation		3.3		0.8	—	4.1
Balance as of December 31, 2023	$	356.9		65.1	115.6	537.6


	Three Months Ended December 31,
	2023		2022
Common stock
Beginning balance	$	308	307
Stock plans		—	—
Ending balance		308	307

Additional paid-in-capital
Beginning balance		304,850	301,553
Stock plans		433	(856)
Ending balance		305,283	300,697

Retained earnings
Beginning balance		989,315	905,022
Net earnings common stockholders		15,169	14,727
Dividends paid		(2,064)	(2,067)
Ending balance		1,002,420	917,682

Accumulated other comprehensive income (loss)
Beginning balance		(23,969)	(31,764)
Foreign currency translation		9,414	11,513
Ending balance		(14,555)	(20,251)

Treasury stock
Beginning balance		(139,362)	(126,961)
Share repurchases		—	(5,076)
Ending balance		(139,362)	(132,037)

Total equity	$	1,154,094	1,066,398


	Aerospace
(In thousands)	& Defense		USG		Test		Total
Customer type:
Commercial	$	37,209	$	81,469	$	35,087	$	153,765
Government		57,524		1,515		5,510		64,549
Total revenues	$	94,733	$	82,984	$	40,597	$	218,314

Geographic location:
United States	$	79,901	$	55,961	$	22,252	$	158,114
International		14,832		27,023		18,345		60,200
Total revenues	$	94,733	$	82,984	$	40,597	$	218,314

Revenue recognition method:
Point in time	$	39,465	$	66,703	$	7,980	$	114,148
Over time		55,268		16,281		32,617		104,166
Total revenues	$	94,733	$	82,984	$	40,597	$	218,314


(Dollars in thousands)	Operating		Finance
Years Ending September 30:	Leases		Leases
2024 (excluding the three months ended December 31, 2023)	$	5,044	1,634
2025		5,684	2,233
2026		4,472	2,297
2027		4,265	2,356
2028 and thereafter		32,991	16,470
Total minimum lease payments		52,456	24,990
Less: amounts representing interest		11,869	6,010
Present value of net minimum lease payments	$	40,587	18,980
Less: current portion of lease obligations		4,878	1,348
Non-current portion of lease obligations	$	35,709	17,632

ROU assets	$	38,685	14,799


	Three Months
	Ended December 31,
(In thousands)	2023		2022
NET SALES
Aerospace & Defense	$	94,733	82,983
USG		82,984	71,045
Test		40,597	51,473
Consolidated totals	$	218,314	205,501

EBIT
Aerospace & Defense	$	16,663	12,536
USG		17,625	16,131
Test		1,779	5,411
Corporate (loss)		(13,946)	(13,521)
Consolidated EBIT		22,121	20,557
Less: Interest expense		(2,667)	(1,658)
Earnings before income taxes	$	19,454	18,899


	Aerospace
(In thousands)	& Defense		USG		Test		Total
Customer type:
Commercial	$	36,740	$	70,162	$	45,992	$	152,894
Government		46,243		883		5,481		52,607
Total revenues	$	82,983	$	71,045	$	51,473	$	205,501

Geographic location:
United States	$	68,934	$	46,379	$	27,503	$	142,816
International		14,049		24,666		23,970		62,685
Total revenues	$	82,983	$	71,045	$	51,473	$	205,501

Revenue recognition method:
Point in time	$	33,604	$	56,031	$	9,101	$	98,736
Over time		49,379		15,014		42,372		106,765
Total revenues	$	82,983	$	71,045	$	51,473	$	205,501


	Three Months Ended			Three Months Ended
	December 31,			December 31,
(Dollars in thousands)	2023			2022
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	1,819			1,601
Operating cash flows from finance leases		223			236
Financing cash flows from finance leases		355			327
Right-of-use assets obtained in exchange for lease liabilities
Operating leases	$	—			13,964
Weighted-average remaining lease term
Operating leases		11.1	years		11.6	years
Finance leases		11.1	years		11.7	years
Weighted-average discount rate
Operating leases		4.5	%		4.4	%
Finance leases		4.7	%		4.6	%

Exhibit Number	Description	Document Location

3.1(a)	Restated Articles of Incorporation	Exhibit 3(a) to the Company’s Form 10-K for the fiscal year ended September 30, 1999

3.1(b)	Amended Certificate of Designation, Preferences and Rights of Series A Participating Cumulative Preferred Stock of the Registrant	Exhibit 4(e) to the Company’s Form 10-Q for the fiscal quarter ended March 31, 2000

3.1(c)	Articles of Merger effective July 10, 2000	Exhibit 3(c) to the Company’s Form 10-Q for the fiscal quarter ended June 30, 2000

3.1(d)	Amendment of Articles of Incorporation effective February 5, 2018	Exhibit 3.1 to the Company’s Form 8-K filed February 7, 2018

3.2	Bylaws	Exhibit 3.1 to the Company’s Form 8-K filed November 22, 2022

4.2	Amended and Restated Credit Agreement dated August 30, 2023	Exhibit 10.1 to the Company’s Form 8-K filed September 6, 2023

10.1	Form of Fiscal 2024 Performance Share Unit Awards to Executive Officers under 2018 Omnibus Incentive Plan	Filed herewith

31.1	Certification of Chief Executive Officer	Filed herewith

31.2	Certification of Chief Financial Officer	Filed herewith

32	Certification of Chief Executive Officer and Chief Financial Officer	Filed herewith

101.INS	XBRL Instance Document*	Submitted herewith

101.SCH	XBRL Schema Document*	Submitted herewith

101.CAL	XBRL Calculation Linkbase Document*	Submitted herewith

101.DEF	XBRL Definition Linkbase Document*	Submitted herewith

101.LAB	XBRL Label Linkbase Document*	Submitted herewith

101.PRE	XBRL Presentation Linkbase Document*	Submitted herewith

104	Cover Page Interactive Data File (contained in Exhibit 101)	Submitted herewith

	ESCO TECHNOLOGIES INC.

	/s/ Christopher L. Tucker
	Christopher L. Tucker
	Senior Vice President and Chief Financial Officer
	(As duly authorized officer and principal accounting and financial officer of the registrant)

Dated: February 9, 2024


To:		(“you”)

From:	Human Resources and Compensation Committee of the Board of Directors (the “Committee”)

Subject:	ESCO Technologies Inc. (the “Company”) 2018 Omnibus Incentive Plan (“Plan”) –
	Fiscal 20__ Performance Share Unit Award (“Award”)


ESCO TECHNOLOGIES INC.		AGREED TO AND ACCEPTED:

By:
	Vice President	Participant

Award Recipient:			(“you”)
Award Date:	November __, 20__
Target Award:		Performance Share Units

Performance Period:	The three-year period beginning on October 1, 20__ and ending on September 30, 20__.
Performance Measures:	EBITDA and Return on Invested Capital (“ROIC”). See Performance Goal Table below and related Notes.
Vesting Date:	The last trading day of the month in which the Committee approves the resolution certifying (i) the performance achieved for each Performance Measure relative to the Performance Goal, and (ii) the rTSR Modifier, if applicable. The Committee will review the level of achievement of the Performance Goals and the applicability of the rTSR Modifier generally at the Committee meeting most closely following the end of the Performance Period. Any earned portion of the award will be converted into shares of Company Stock and distributed on the next trading day after the vesting date.
rTSR Modifier:	When applicable, the Relative Total Shareholder Return (“rTSR”) Modifier will be applied to the number of the Shares earned by achievement of the Performance Goals. See rTSR Modifier Table below and related Notes.

Performance Measure	Weight (Percent of Target Award	Performance Level	Performance Goals	PSU Conversion Rate into Shares as Percent of Target
EBITDA (See Note A)	__%	Below Threshold	Achieve less than __% of EBITDA target	0%
EBITDA (See Note A)	__%			Threshold	Achieve __% of EBITDA target	50%

		Target	Cumulative EBITDA through Performance Period = $_____M	100%
				Maximum	Achieve ___% of EBITDA target	200%
ROIC (See Note B)	__%	Below Threshold	Achieve less than __% of ROIC target	0%
				Threshold	Achieve __% of ROIC target	50%
				Target	ROIC = ___%% for FY 20__	100%
				Maximum	Achieve ___% of ROIC target	200%

Company’s TSR Rank compared to Peer Group	rTSR Modifier
Below 25^th percentile	0.__
25^th – 75^th percentile	1.0
Above 75^th percentile	1.__

	/s/ Bryan H. Sayler
	Bryan H. Sayler
	President and Chief Executive Officer